Friday, February 28, 2014

Some days ago the speaker of the Catalan government had to backpedal because a report he had commissioned compared the secessionist movement in Catalonia with the protest movement in Ukraine that led to the fall of the Yanukovitch regime and to a very uncertain and volatile situation (that includes the use of violence and serious financial and monetary problems). The speaker Mr. Homs said that the report was quoted out of context and that the cases were very different. Indeed they are different, and the main difference is that Catalonia is part of a member state of the European Union and the euro zone, and it is thanks to this membership that peace, democracy and the rule of law are well anchored in Catalonia. However, there are similarities in the arguments used by some of the activists. In Ucraine, both the opposition to Yanukovitch and the opposition to the new revolutionary rulers use nationalist arguments like the "right to decide our own future" through a mixture of referenda and "democratic radicalism." Ukraine split from Russia through a referendum in 1991. The chronicles report that the country is divided between a pro-European west and a pro-Russian east, but I am sure than many people would like to live together and do not see these identities as incompatible (Russian and Ukranian are possibly as close as Catalan and Spanish). I am also sure that these peaceful people (the federalists?) are today silenced and ridiculed by radical groups who become more "central," although perhaps the peaceful are a silent majority. In the autonomous region of Crimea, a radical group took the Parliament building violently and proclaimed the right of Crimea to celebrate a referendum to become a state (with a concrete question and a fixed date, but without legal coverage, like the nationalists have done in Catalonia). How long will non-Russian minorities in Crimea wait until they proclaim their own "right to decide their future"? Either we build a united Europe, a big and diverse democracy using the words of Paul Krugman to distance himself from Scottish secessionists, or we keep fragmenting it so that it degenerates into a set of competing ethnocracies. It is just our membership in the European Union that makes it impossible that Catalonia and Spain fall into that. Let's hope it lasts and becomes even more integrated.

Tuesday, February 25, 2014

I have signed this manifesto and I encourage you to do the same:
The European Union is experiencing an existential crisis, as the
European elections will soon brutally remind us. This mainly involves
the euro zone countries, which are mired in a climate of distrust and a
debt crisis that is very far from over: unemployment persists and
deflation threatens. Nothing could be further from the truth than
imagining that the worst is behind us.
This is why we welcome with great interest the
proposals made at the end of 2013 by our German friends from the
Glienicke group for strengthening the political and fiscal union of the
euro zone countries. Alone, our two countries will soon not weigh much
in the world economy. If we do not unite in time to bring our model of
society into the process of globalization, then the temptation to
retreat into our national borders will eventually prevail and give rise
to tensions that will make the difficulties of union pale in comparison.
In some ways, the European debate is much more advanced in Germany than
in France. As economists, political scientists, journalists, and above
all citizens of France and Europe, we do not accept the sense of
resignation that is paralyzing our country. Through this manifesto, we
would like to contribute to the debate on the democratic future of
Europe and take the proposals of the Glienicke group still further.
It is time to recognize that Europe's existing
institutions are dysfunctional and need to be rebuilt. The central issue
is simple: democracy and the public authorities must be enabled to
regain control of and effectively regulate 21st century globalized
financial capitalism. A single currency with 18 different public debts
on which the markets can freely speculate, and 18 tax and benefit
systems in unbridled rivalry with each other, is not working, and will
never work. The euro zone countries have chosen to share their monetary
sovereignty, and hence to give up the weapon of unilateral devaluation,
without however developing new common economic, fiscal and budgetary
instruments. This no man's land is the worst of all worlds.
The point is not to pool all of our taxes and
government spending. All too often today's Europe has proven to be
stupidly intrusive on secondary issues (such as the VAT rate on
hairdressers and equestrian clubs) and pathetically impotent on
important ones (such as tax havens and financial regulation). We must
reverse the order of priorities, with less Europe on issues on which
member countries do very well on their own, and more Europe when union
is essential.
Concretely, our first proposal is that the euro zone
countries, starting with France and Germany, share their corporate
income tax (CIT). Alone, each country is hoodwinked by the
multinationals of every country, which play on the loopholes and
differences between national legislations to avoid paying tax anywhere.
National sovereignty has thus become a myth. To fight against this “tax
optimization”, a sovereign European authority needs to be given the
power to establish a common tax base that is as broad as possible and
strictly regulated. Each country might then continue to set its own CIT
rate on this common base, with a minimum rate of around 20%, and with an
additional rate on the order of 10% to be levied at the federal level.
This would make it possible to give the euro zone a real budget, on the
order of 0.5% to 1% of GDP.
As the Glienicke group rightfully points out, this
budget capacity would allow the euro zone to carry out stimulus and
investment programmes, in particular with respect to the environment,
infrastructure and training. But unlike our German friends, we feel it
is essential that the budget of the euro zone comes from a European tax,
not from contributions by the States. In these times of starving
budgets, the euro zone needs to demonstrate its ability to raise taxes
more fairly and more efficiently than the States; otherwise, people will
not grant it the right to spend. Beyond that, it is necessary to very
quickly generalize the automatic exchange of banking information within
the euro zone and establish a concerted policy to make the taxation of
income and wealth more progressive, while at the same time jointly
waging an active fight against tax havens outside the zone. Europe must
help to bring tax justice and political will into the globalization
process: such is the content of our first proposal.
Our second proposal is the most important and flows
from the first. To approve the tax base for the CIT, and more generally
to discuss and adopt the fiscal, financial and political decisions on
what is to be shared in the future in a democratic and sovereign
fashion, we must establish a parliamentary Chamber for the euro zone.
Here too we join our German friends from the Glienicke group, who
however hesitate between two options: either a euro zone Parliament
consisting of the members of the European Parliament from the countries
concerned (a sub-formation of the European Parliament reduced to the
euro zone countries ), or a new Chamber based on grouping a portion of
the members of the national parliaments (e.g. 30 French MPs from the
National Assembly, 40 members from the German Bundestag, 30 Italian
deputies, etc., based on the population of each country, according to a
simple principle: one citizen, one vote). This second solution, which
takes up the idea of a “European Chamber” proposed by Joschka Fischer in
2011, is, we believe, the only option for moving towards political
union. It is impossible to completely deprive the national parliaments
of their power to set taxes. Precisely, it is on the basis of national
parliamentary sovereignty that a shared European parliamentary
sovereignty can be forged.
In this scheme, the European Union would have two
chambers: the existing European Parliament, directly elected by the
citizens of the EU 28, and the European Chamber, representing the States
through their national parliaments. The European Chamber would
initially involve only the countries of the euro zone that want to move
towards a greater political, fiscal and budgetary union. But it would be
designed to welcome all EU countries agreeing to go down this road. A
Minister of Finance of the euro zone, and eventually an actual European
government, would answer to the European Chamber.
This new democratic architecture for Europe would
make it possible to finally overcome today’s inertia and the myth that
the Council of Heads of State could serve as a second chamber
representing the States. This wrong fable reflects the political
impotence of our continent: it is impossible for one person to represent
a country, unless we resign ourselves to the permanent impasse imposed
by unanimity. To finally move to majority rule on the fiscal and
budgetary matters that the euro zone countries choose to share, it is
necessary to create a genuine European Chamber, where each country is
represented not by their head of state alone, but by Members who
represent all political persuasions.
Our third proposal directly concerns the debt crisis.
We are convinced that the only way to put this definitively behind us
is to pool the debts of the euro zone countries. Otherwise speculation
on interest rates will renew again and again. It is also the only way
for the European Central Bank to conduct an effective and responsive
monetary policy, as does the US Federal Reserve (which would also be
hard pressed to do its job properly if every morning it had to arbitrate
between the debts of Texas, Wyoming and California). The pooling of
debt has de facto already begun with the European Stability Mechanism,
the emerging banking union and the ECB's Outright Monetary Transactions
programme, which already affect the taxpayers of the euro zone to one
extent or another. It is necessary now to go further, while clarifying
the democratic legitimacy of these mechanisms.
We must re-start from the proposal for a “European
debt redemption fund” made in late 2011 by the council of economic
experts to the German chancellor, which was designed to pool all debts
exceeding a country’s 60% GDP limit, and add in a political component.
It is not possible to decide twenty years in advance how quickly such a
fund could be reduced to zero. Only a democratic body, namely the
European Chamber formed out of the national parliaments, would be able
to set the level of the common deficit every year, based concretely on
the state of the economy.
The choices made by this body will sometimes be more
conservative than we might personally wish, and at other times more
liberal. But they will be taken democratically, based on majority rule,
in the light of day. Some on the Right would like these budget decisions
to be confined to post-democratic bodies or frozen in constitutional
marble. Others on the Left, prior to accepting any strengthening of
political union, would like a guarantee that Europe will forever carry
out the progressive policies of their dreams. These two pitfalls must be
avoided if we want to overcome the current crisis.
Debate over Europe's political institutions has all
too often been pushed aside as technical or secondary. But refusing to
discuss the organization of democracy ultimately means accepting the
omnipotence of market forces and competition and abandoning all hope
that democracy can regain control of 21st century capitalism.
This new political space is crucial. Beyond macro
policies or fiscal issues, our social models are a common good that we
need to preserve and sustain. But they are also key to a successful
inclusion in globalization. For fiscal systems convergence to the
growing concern on social investment, France and Germany initiatives or
reinforced cooperation are missing the point. 28 European Union lags on
those subject to translate consensus into act and, when it come to
money, finally fails. A European Chamber would be the place where
decisions are made because all implications in terms of rights and
duties would be explicit. The scope for such decisions is large and one
can dream of subjects to be considered : german corporate governance, by
a broader power accorded to employee representatives has contributed to
keep a productive sector in the crisis ; childhood care for all ;
training ; social legislation convergence ; a price for CO2 emissions in
order to mitigate climate change.
Many will oppose our proposals by arguing that it is
impossible to amend the Treaties, and that the French people do not want
greater European integration. These arguments are false and dangerous.
The treaties are being modified constantly, as was the case in 2012,
when the matter was settled in little more than six months.
Unfortunately, this was a poor reform, which reinforced a federalism
that is technocratic and inefficient. To claim that public opinion does
not like today's Europe and then conclude that there should be no change
in its basic functioning and institutions amounts to a culpable
inconsistency. When the German government produces its new proposals for
reforming the treaties in the coming months, nothing says these reforms
will be more satisfactory than those of 2012. But rather than just sit
on our hands waiting, what is needed is finally to start a constructive
debate in France so that we finally have a social and democratic Europe.

Friday, February 21, 2014

The Economist dedicates today three pieces to the debate on Scottish independence. In the editorial, it criticizes the Scottish prime minister, Alex Salmond, for underestimating the financial costs of independence, and for trying to convey the message that independence will be easy and smooth. In a specific article on monetary options, the magazine says that politicians from the main Brittish political parties plus the governor of the Bank of England are right to argue that a truly independent Scotland could not keep the pound because monetary union should go with fiscal and political union, as the euro crisis has taught. In the section on Europe, the magazine is very balanced, arguing that the president of the European Commission, Durao Barroso, was too tough when he said that Scotland would have it too difficult, if not impossible, to become a new member of the EU. But The Economist is clear at the end of the article: "Divorce means breakaways must live as singles, at least for a time.
There will be no instant betrothal to the EU, no dowry from Brussels—and
no cheques guaranteed by other central banks. Scary or liberating, that
is the meaning of independence." I am no fan of a referendum to create new borders in a Europe that should proceed to eliminating what remains of the current borders. And I suspect that whatever is the outcome of the referendum, not even the Scottish nationalists want a truly independent Scotland (they wanted a third alternative in the question, but the UK primer minister imposed only two). After all, they want to keep the pound, the Queen, and the BBC. By the way, for the latter, you don't need a referendum and a 600 hundred page book explaining how independence would look like, you just need a satellite dish. I also want the BBC in Catalonia. Actually I'm watching it now, as I do every day in my apartment in Barcelona, one more sign that national independence in Europe, by the UK, Scotland, Catalonia or Germany in the XXI century is absolute nonsense.

Sunday, February 16, 2014

The book "Before and Beyond Convergence. The Politics of Economic Change in China and Europe", by Jean-Laurent Rosenthal and R. Bin Wong, is much more than a comparative history of China in Europe in the last ten centuries, although it is also that. It is a vindication of the importance of the spatial dimension of polities. In particular, it criticizes the notion that political competition between jurisdictions has advantages similar to economic competition between firms, in terms of fostering innovation and better tayloring of public action to the preferences of citizens/consumers. The history of Europe since the fall of the Roman Empire in the first centuries of our era has been a history of political fragmentation and competition, whereas the history of China has been one of more successful political integration. For most of the period under study, this allowed China to develop a larger market with relatively low taxation and high level of public good production, thanks to a lower intensity of wars and more unrestricted trade as compared to Europe. The markets of Adam Smith develop more easily in larger polities, not among quarrelling ones that prevent the creation and regulation of large markets. Public policies such as responding to financial or natural catastrophes are also easier in large polities. The concentration of people in cities and the differences in relative prices that encouraged the industrial revolution in some European countries and not in China, were an unintended and late consequence of political fragmentation. After missing that revolution, the incredible economic development of China in the recent decades owes a lot to previous informal institutions and to the channels that are made possible by a large polity. The attempts of Europe to proceed to higher levels of harmonization and integration are the result of the tragic lessons of the twentieth century which did nothing else that culminate a trajectory of disastrous fragmentation. The industrial revolution took place in spite of this, not as a result of this. The limits to European integration that come from nationalist shortsightedness are a symptom that the right lessons have not been fully learned.

Tuesday, February 11, 2014

Mark Carney, the Canadian current Governor of the Bank of England and former
governor of the Bank of Canada, accepted his present position after
seriously considering the possibility of presenting his candidacy to
lead the federalist Canadian Liberal Party, the party that has done most
in Canada to democratically fight secessionist movements in Quebec in a
positive way, by constructing a well reasoned, federalist alternative. A
few weeks ago, he gave a speech in Scotland where he was clear that the
"independence" sought by the Scottish Nationalist Party (a currency
union with the UK) was incompatible with true fiscal independence.
"The euro area is now beginning to rectify its institutional shortcomings, but further, very significant steps must be taken to expand the sharing of risks and pooling of fiscal resources. In short, a durable, successful currency union requires some ceding of national sovereignty. It is likely that similar institutional arrangements would be necessary to support a monetary union between an independent Scotland and the rest of the UK."
In early March, another Canadian liberal, the former leader of the party
Stéphane Dion, will be in Spain to share his experience as a person who
lived through and won a secessionist debate, the one about Quebec. Mr. Dion is a federalist francophone
form Quebec, and he is both a politician and an academic, which means
that his arguments have a double perspective, and are far away from a populist appeal. In a previous shorter visit to Spain, he already expressed his
opinion that secessions in democratic societies have a strong component
of democratic manipulation, and although he was a winner in the
referendum about independence in Quebec in 1980 and 1995, he warned that
independence referenda are divise and socially dangerous.
The Canadian federalists, though, not only were tough in their criticism to secession movements in democratic societies, but offered and worked for alternatives that guarantee a better and more peaceful future for their societies.

Wednesday, February 5, 2014

I have signed the Manifesto for a global democracy, I encourage everybody to support it. It starts by saying this:

Politics lags behind the facts. We live in an era
of deep technological and economic change that has not been matched by a
similar development of public institutions responsible for its
regulation. The economy has been globalized but political institutions
and democracy have not kept pace. In spite of their many peculiarities,
differences and limitations, the protests that are growing all over the
world show an increasing discontent with the decision-making system, the
existing forms of political representation and their lack of capacity
for defending common goods. They express a demand for more and better
democracy.

Global welfare and security are under threat. The
national and international order that emerged from the end of World War
II and the fall of the Berlin Wall has not been able to manage the great
advances in technology and productive systems for the benefit of all
humanity. On the contrary, we are witnessing the emergence of regressive
and destructive processes resulting from the economic and financial
crisis, increased social inequalities, climate change and nuclear
proliferation. These phenomena have already affected negatively the
lives of billions of human beings, and their continuance and mutual
reinforcement menace the peace of the world and threaten the survival of
human civilization. (The whole Manifesto can be read and signed here).

Monday, February 3, 2014

Now that nationalists in Scotland, Catalonia and other places try to create new states (or to segregate their states from the process towards a federal Europe, like the British right or the Austrian far right), it is timely to remember what an icon of social democracy, the late historian Tony Judt, had to say about the nation state in general, and the state of Israel in particular:
"At the dawn of the twentieth century, in the twilight of the
continental empires, Europe’s subject peoples dreamed of forming
“nation-states,” territorial homelands where Poles, Czechs, Serbs,
Armenians, and others might live free, masters of their own fate. When
the Habsburg and Romanov empires collapsed after World War I, their
leaders seized the opportunity. A flurry of new states emerged; and the
first thing they did was set about privileging their national, “ethnic”
majority—defined by language, or religion, or antiquity, or all three—at
the expense of inconvenient local minorities, who were consigned to
second-class status: permanently resident strangers in their own home.
But one nationalist movement, Zionism, was frustrated in its
ambitions. The dream of an appropriately sited Jewish national home in
the middle of the defunct Turkish Empire had to wait upon the retreat of
imperial Britain: a process that took three more decades and a second
world war. And thus it was only in 1948 that a Jewish nation-state was
established in formerly Ottoman Palestine. But the founders of the
Jewish state had been influenced by the same concepts and categories as
their fin-de-siècle contemporaries back in Warsaw, or Odessa, or
Bucharest; not surprisingly, Israel’s ethno-religious self-definition,
and its discrimination against internal “foreigners,” has always had
more in common with, say, the practices of post-Habsburg Romania than
either party might care to acknowledge.
The problem with Israel, in short, is not—as is sometimes
suggested—that it is a European “enclave” in the Arab world; but rather
that it arrived too late. It has imported a characteristically
late-nineteenth-century separatist project into a world that has moved
on, a world of individual rights, open frontiers, and international law.
The very idea of a “Jewish state”—a state in which Jews and the Jewish
religion have exclusive privileges from which non-Jewish citizens are
forever excluded—is rooted in another time and place. Israel, in short,
is an anachronism."
(The whole 2003 article by Tony Judt, "Israel: The Alternative," can be read here).